No matter how many times you may have been told otherwise, having a business plan is always a good idea.
There is no denying the allure of running your own business, especially if you’re a young person just starting your career. However, it’s important to temper the enthusiasm of having an idea for a new business with the reality of being an entrepreneur. This is especially true when you’re concerned that people won’t take you seriously because of your age.
Have a Plan
The harsh reality of entrepreneurship is that the majority of new businesses fail within the first two years, and lack of planning tops the list of reasons why. New business owners make the mistake of thinking that their passion for their product or service is the most important element. While believing in what you are selling is certainly important, it can’t take the place of writing and following a business plan.
The Small Business Association (SBA) recommends writing a detailed business plan to cover the first three to five years of operation. This document not only lists important projections, it forces you to consider the exact steps you need to take to grow your revenue. It should include the following sections at a minimum:
- Executive summary:Describe your company’s mission statement, when you started the business, your products or services, growth plans, financial information and any company highlights. As a startup, your focus will be more on past education and experience that led you to start this company rather than business accomplishments.
- Company description:Describe the purpose of your business and how your products or services meet a specific need within your niche.
- Market analysis:Cover the demographics of your target market, the size of the target market and how much of a market share you expect to gain. You should also demonstrate that you have thoroughly researched your competition.
- Organizational structure:Include an organizational chart along with a brief description of each person’s role and qualifications to assume that role.
- Products or services:Describe what you are offering to customers or clients in more detail. Be sure to include plans for research and development as well as details about any patents or copyrights you hold.
- Marketing and sales plan:Your marketing strategy should include plans for penetrating the market, strategies for growth, channels of distribution, and how you plan to communicate with customers. For your sales plan, be sure to include whether you intend to employ a sales force, the compensation structure you will use and your specific sales activities.
- Funding request and financial projections:As a new entrepreneur, you will likely require outside funding to get started. This part of your business plan should include your current and future funding needs, how you intend to use the money, and details about any future plans such as selling your company or merging with another business.
- Appendix:This is a place to store items you may need in certain situations, such as letters of recommendation, your resume, your personal and business credit reports, licenses and all legal documents.
Build a Cash Reserve
Since it can take some time to earn a profit from your new business, it’s important to have at least six months of reserve before you give up your regular job. The Service Corps of Retired Executives (SCORE) suggests the following tips to build the reserve you need:
- Start saving as soon as you decide to go into business for yourself, even if it’s just a few dollars a week. The important thing is to get into the habit of saving. You can always increase the contribution later as you earn more money.
- Take a realistic look at your current and projected monthly expenses so you know how much cash you need to meet them.
- If you’re still working for an employer, see if you have the option to automatically put some of each paycheck into savings with direct deposit.
Surround Yourself With People Who Support You
Starting your own business isn’t the norm in America, especially for people who just got out of college. If your friends ridicule your efforts, limit your time with them. Instead, look for family and business associates who are willing to be your cheerleader and to push you to accomplish your goals at the same time. If you haven’t already, consider joining a group for entrepreneurs or one that is specific to your industry.
Finding a mentor in your field is also a good idea. This can be a former boss, a college professor or a friend of the family who you know well and who is supportive of your business ventures. If you don’t know anyone willing to be a mentor, contact SCORE and request one. This organization is made of retired business executives who are happy to mentor the younger generation.
Maintain Separate Bank Accounts
Your company may be so small in the beginning that you don’t think it’s necessary to separate your personal and business finances. It’s important to do so for two reasons. First, it limits your liability if you incorporate your business under a name that is different from your legal name. Secondly, having separate accounts makes it easier to track income and expenses as well as pay taxes. Just make sure that one of the payments you regularly make is to yourself. You need to develop the discipline to give yourself a paycheck or you will give in to the temptation to put all of your profits back into the business.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
Image credit: CC by Southeastern Seminary